Which sectors of the Ukrainian economy have the greatest growth potential

Which sectors of the Ukrainian economy have the greatest growth potential

Each sector of the economy plays a significant role in the development of the state and society. Ukraine needs to identify the most promising sectors to maintain economic performance, and secondly, to create conditions for economic growth during the post-war reconstruction of the country, and to properly allocate investments.

The Government of Ukraine has identified the key segments with the greatest prospects for development and a high level of investment attractiveness:

• energy sector
• agriculture and food sector;
• transportation and logistics;
• critical materials sector;
• information technology;
• machine building.

These segments are already contributing to the development of the country’s economy and have significant growth potential. Relevant goods and services are also in demand both within the country and on domestic markets. It is important to note that by developing these segments, Ukraine will help the world to confront various global challenges, such as hunger and the climate crisis. In addition, the development of these industries allows us to create an alternative to Russian exports.

Due to the hostilities, Ukraine’s economy fell by almost 30% in the first year. Businesses in various segments faced many challenges and problems: shelling by the Russian Federation, destruction of production facilities and premises, theft or destruction of equipment, disruption of standard logistics chains, reduced customer solvency, problems with the supply of goods, the need for relocation, occupation of certain regions, and others. A number of production processes were also disrupted due to power outages.

At the same time, Ukrainian business has demonstrated resilience and adaptability, which has led to a 2.2% increase in national GDP for the next year. However, to recover, the national economy needs to grow at a faster rate and attract more investment.

Ukraine has managed to maintain macrofinancial stability thanks to timely support from its partners and appropriate policy decisions. Consumer inflation is declining to 10.6%, while core inflation is falling to 9%.

According to the Ministry of Economy, the economy is expected to grow by 3.5% in 2024 and by 6.8% in 2025. However, even with these figures, there is even more potential for recovery.

Ukrainian economy: energy sector

Ukraine’s energy sector has become one of the main targets of terrorist attacks by Russia. Since October 2022, the energy system has suffered a significant number of missile and drone strikes. In fact, not a single facility has been left unscathed by the aggressor’s attacks. In addition, the energy sector has suffered significant losses due to the occupation of certain regions and destruction in the war zone. The occupiers stole equipment, and some facilities, including ZNPP, are still under the control of Russia.

At the same time, despite the experts’ forecasts and the extremely difficult conditions, the energy sector demonstrated resilience and was able to continue its operations. In February 2023, power supply was restored in full.

One of the ways of energy development in Ukraine, which is considered strategic for the state, is the transition to the use of renewable energy sources and energy efficiency. The transition to green energy and investments in renewable energy sources will ensure the country’s independence from external supplies and allow it to achieve a high level of energy security. Such measures also bring the country closer to the implementation of the green course, which is in line with the European Commission’s REPowerEU plan, and accelerate European integration.

Even in today’s environment, renewable energy continues to develop, and depositors continue to invest in the sector. New facilities are being restored and built, and projects using the latest technologies are being launched.

Ukraine has significant potential and favorable natural conditions for the construction and development of solar and wind energy. The development of renewable energy sources will strengthen the energy system and allow for the export of surpluses.

Investing in renewable energy is already relevant at the local level, with communities or businesses having their own energy sources, which helps to avoid losses in the event of blackouts.

Sector of the economy with great growth potential: agriculture

The agricultural sector accounts for a significant share of the Ukrainian economy, generates a large number of jobs, contributes to the development of infrastructure and businesses at the local level, stimulates related industries, and contributes a significant share of GDP.

Ukraine has a number of favorable conditions for agricultural production: a temperate climate, sufficiently enriched soils, and optimal rainfall. The country is one of the leading producers and exporters of agricultural products, which is why it retains prospects for further development and investment attractiveness.

The industry has also been negatively affected by the hostilities due to shelling and occupation, mining, lack of specialized specialists, logistics disruption, destruction and damage to facilities. In addition, the lack of war risk insurance also significantly affects the sector’s operations.

Currently, there is a need to ensure the required exports, restore damaged grain storage facilities, and build new facilities. In addition, there is a need to upgrade technical equipment and transportation.

Despite all the risks and difficulties, the Ukrainian agricultural sector retains significant potential for growth, with companies adapting to the current environment, actively cooperating with the information technology sector, and introducing new approaches to production.

Ukrainian economy: transportation and logistics

The transportation and logistics system supports the activities of almost all economic sectors. Due to the Russian invasion, export opportunities were virtually paralyzed, while attempts to transport grain by land almost led to a logistics collapse.

Today, Ukraine controls most of the seaports and ensures maritime transportation despite the high risks and threats, providing opportunities for exports. This mode of transportation has a strong potential for further development, as it accounted for most of Ukraine’s exports in the pre-war period.

Freight transportation by rail was also cut at the beginning of the war, and Ukrainian businesses often suffered losses as a result. In addition, in the first year, due to the losses of Ukrzaliznytsia, the existing freight tariffs were increased by 70%. Today, they have been reduced to 30%, but this is still not a profitable option for entrepreneurs in the agricultural sector.

The Great War completely halted air transportation. In addition, the airport infrastructure was partially destroyed due to strikes from the Russian Federation. However, at the end of 2023, it was announced that some flights might resume in 2024.

Today, both the transportation industry and its main customers have adapted to the war and started developing new export routes. Despite the high risks, the system ensures the transportation of essential goods.

Nevertheless, experts point to a significant potential for further development of the sector, especially in the period of post-war reconstruction. Exports are expected to grow, and damaged infrastructure is expected to be repaired, which will drive growth in the logistics sector. Today, Ukrainian companies remain attractive for investment and are already implementing some international projects.

Learn more about the companies

Ukraine’s economy: critical materials

The extraction of critical minerals in Ukraine should be carried out in the interests of the state and with due regard for the principles of social and environmental justice.

According to the World Bank, the transition to low-carbon energy by 2050 may require approximately 3 billion tons of certain categories of minerals. The development of renewable energy depends on such components as lithium, cobalt, nickel, copper, graphite, and rare earth metals, which are already in high demand on the world’s markets.

Countries with significant reserves of critical mineral resources are becoming important players in the market and objects of geopolitical interests of the most developed countries. The availability of minerals determines the security and economic health of a country. In addition, critical raw materials have an impact on the main sectors of the European economy: renewable energy, electric vehicles, the digital industry, defense, and aerospace.

Ukraine has significant potential for the development of the critical materials industry. The program for the development of Ukraine’s mineral resource base until 2030 indicates the presence of significant deposits. Ukrainian subsoil includes nearly 20,000 deposits and occurrences of 117 different types of minerals, of which approximately 9,000 deposits with nearly a hundred types of raw materials are of commercial importance, with more than 30% of them under development.

Many of the deposits contain critical and strategic materials. In fact, Ukraine has about 30 mineral deposits that are critically important for the European Union.

Due to the occupation of some territories, some projects of investors and mining companies had to be postponed. But at the same time, this segment has a huge potential for further development and improvement of the country’s economic performance.

Ukrainian economy: information technology

The IT sector is an important industry that was in first place in terms of service exports in the pre-war period. Even in today’s conditions, the sector continues to grow and develop its activities. In recent years, more and more specialized companies have appeared on the market, and the demand for specialized education and relevant specialists is growing. According to statistics, the level of investment in the information technology sector increased almost 10 times between 2014 and 2019. For the most part, Ukrainian IT companies are focused on exporting services.

Undoubtedly, the great war has had a negative impact on the companies’ operations, as the risks have increased significantly, there is a shortage of specialists, the need to relocate businesses, and the need for additional funding.

Despite all the difficulties, the sector has a high level of investment attractiveness and significant growth potential. In fact, it can become one of the drivers of the economy during the post-war recovery. However, the industry’s development depends on a number of factors, including the duration of hostilities, the speed of the country’s recovery, and the availability of international investment.

Promising industry: machine building

The machine building industry is the sector of the global economy with the highest potential for the production and implementation of various product, technological and technical innovations, which determines the possibilities of achieving a high level and creating prospects for the economic development of any country.

The sector is strategically important for the economy, as evidenced by its high share in the manufacturing industry in most developed EU countries. The Ukrainian machine building industry has a lower contribution to the economy than in the EU, but it has significant potential for further development.

The machine building industry in Ukraine has a significant human capital and sufficient resource and production potential to ensure efficient operation and provide the economy with the necessary range of products. In addition, companies in the sector have considerable experience in most sub-sectors.

It is the combination of these factors that makes the segment highly attractive for investment. Today, despite all the risks and challenges of the great war, joint projects with international partners are being implemented. The companies have adapted to the current environment and are modernizing their production processes, which leads to improved quality and higher profits.

Industry experts outline significant growth prospects in the post-war recovery period.

Source: https://blog.youcontrol.market/